Are There Alternatives To A Gas-tax Holiday? Yes.

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THE VINE MAY 2, 2008

Are There Alternatives To A Gas-tax Holiday? Yes.

There are two things going on with high gasoline prices. From an environmental standpoint, these are pretty valuable price signals that are getting people to consume less oil, drive more sparingly, and switch to more fuel-efficient cars. Insofar as you think it's a good idea to wean the country off fossil fuels—either for energy-security reasons or to save the planet from toasting—those are positives outcomes, and short-term gimmicks to reduce the price of gas, as Hillary Clinton and John McCain prefer, are counterproductive. (Of course, the Clinton-McCain gas-tax "holiday" wouldn't lower the price of gas by all that much, if anything, but that's another story.)

That said, in the short term, many Americans—especially lower-income Americans—really are getting pinched by higher gas prices. Households making less than $15,000 a year now spend, on average, 13 percent of their income on gasoline. It would have been swell if, ten or 20 years ago, Congress had had the foresight to promote, say, fuel efficiency and public transportation—and it should certainly start pursuing those things now—but it didn't, and now a lot of folks are up a creek without… er, a light rail.

It's not impossible to thread this needle. As Sam Davis and Dan Weiss of the Center for American Progress write, if it's economic pain you're worried about, a better alternative to trying to ratchet down the price of gas or suing OPEC would be to offer a simple temporary tax rebate to all lower- and middle-income families. This way, those that genuinely have no alternatives to driving would be better able to cope with increases at the pump, while those that can drive less or carpool or take public transit would still have incentive to do so, since they could pocket a bigger chunk of their rebate. It's environmental and progressive, and a proposal like this would probably let Obama maintain his edge on this issue while shoring up his vulnerabilities.

If Congress needs to raise the $22 billion to pay for this little rebate, it could always repeal some of the tax loopholes and tax breaks handed out to oil and gas companies. After all, officials from those companies have conceded that they don't need tax breaks to encourage exploration. More than anything, though, it would be helpful if the United States started aggressively pursuing policies to reduce its reliance on oil—so that when $200/barrel inevitably strikes, we're not all still sitting around once again having heated discussions about hare-brained gas-tax holidays and short-term bailouts.

P.S. Somewhat apropos, Matt Yglesias passes along evidence that consumers only bear half the burden of a gas tax (wholesalers bear the other half). As he says, "if we were to raise the gas tax, then rebate half the revenues to
citizens on some kind of flat per person basis, and make the other half
available to fund transit projects, there'd be no net burden on the
population, you'd create an incentive to use alternative forms of
transportation where they exist, and you'd have a pool of revenue
available to create alternative forms of transportation." Unlikely, sure, but worth thinking about.

--Bradford Plumer

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